UAL Emerges From 3 Years of Bankruptcy

United, the No. 2 U.S. airline, has slashed costs by $7billion a year, but now it's sink or swim.

UAL Corp., parent of United Airlines, ended three years in Chapter 11 protection Wednesday.

The No. 2 U.S. airline, which used its time in protection from creditors to slash costs by $7 billion a year, now must sink or swim in a fiercely competitive industry that is plagued by soaring fuel costs and overcapacity.

"We can be better. We are in a very competitive industry, and we take nothing for granted," UAL Chief Executive Glenn Tilton said.

Experts were cautious in assessing UAL's prospects for success and long-term survival. If UAL succeeds, its story would resemble that of Continental Airlines Inc., which went into bankruptcy protection twice before regaining traction. If it fails, UAL would join a long list of U.S. airlines that died in or after bankruptcy -- including Pan American.

UAL filed for bankruptcy in December 2002, weakened by low-fare competition and a drop-off in air travel after the Sept. 11, 2001, terrorist attacks on the United States. The airline's woes intensified as energy prices crept higher.

Analysts have questions about the appeal for investors of shares in the reorganized UAL, which are to begin trading today on Nasdaq. "I am not sure who's going to buy their stock," said Morningstar analyst Chris Lozier. "There are people who like to gamble in the airline game. We are not those people."

Lozier said that for UAL to survive and to be a worthwhile equity investment, it needs the most competitive cost structure in the industry. He said Delta Air Lines Inc. and Northwest Airlines, which currently are restructuring in bankruptcy, could emerge with even stronger cost structures than UAL's.

"In a year or so, is United going to have the most competitive cost structure among the legacy carriers?" Lozier said.

Low costs are the key to success in an industry that has too many seats for all carriers to thrive. Many experts, including UAL's Tilton, say the industry is in dire need of consolidation to help pull excess capacity from the market.

Some have speculated that UAL may be interested in merging with another airline, but Tilton denies that he is shopping the airline around. "I do think the market would benefit from consolidation," he said Tuesday.

Meanwhile, the company continues to face employee morale problems stemming from wage and benefit cuts its workers endured during bankruptcy.

Unions representing the workers were riled most recently by a provision in UAL's reorganization plan that grants an estimated $115 million in equity to the top 400 management personnel. Tilton's share of that amount was estimated at $15 million.

Management compensation of that amount flies in the face of a notion that UAL employees should share the burden of cost cuts, said Mark Bathurst, chairman of the United master executive council of the Air Line Pilots Assn. "It's hard to imagine a situation where one would look at this as a shared sacrifice," he said.